Debt

QUESTION: Derricka has the money to pay off her car loan, but a friend told her she should keep making payments because of the low interest rate. Dave says this is dumb, and he advises Derricka to pay off the car immediately.

ANSWER: Derricka, your co-worker is broke. Taking financial advice from broke people is like taking dieting advice from fat people. In other words, it’s dumb. Pay off your car, and never borrow money to buy a car again for the rest of your life.

You’ve got to get out of the land of car payments if you want to win with money. The idea that you’re stuck with car payments — that you’re always going to have one — is the mantra of those who’ve given up hope. Don’t be like all those folks who complain about crap like stagnant wages and won’t get up off their stagnant butts to change their lives.

Miss Derricka, pay off your car today. And don’t take any more financial advice from broke people.

QUESTION: Patrick asks if he should cash in some EE bonds, and use the money to pay off his school loans and get rid of a truck he can’t afford. Dave thinks it’s a great idea, and he walks Patrick through the steps he should take to begin gaining control of his money.

ANSWER: The bonds might be taxed, but it won’t be much to worry about. EE bonds make less than one percent, so you haven’t really earned much. Those things are a horrible investment.

A $30,000 truck doesn’t work with a $50,000 income. So, cash in the bonds immediately, sell the truck, and use some of the money from the EE bonds to pay off the school loans. Then, find yourself a cheap, little truck that will get you around for a few years.

You can do this, Patrick. I want you to have a nice truck one day, but I don’t want that truck to be a burden. This one’s got you by the throat, and you’re feeling it, aren’t you?

Drive like no one else for a little while now, so that later you can really drive like no one else.

QUESTION: Nathan asks Dave why he believes all debt is bad. Dave explains his philosophy, the ramifications of debt, and how it impacts a person’s quest for financial peace.

ANSWER: When you ask a question that’s really a statement, it’s called a passive aggressive question. From the way you asked the question, it sounds like you’re letting me know you think some kinds of debt are okay instead of asking for my opinion. So, you and I will now argue. Are you ready?

It’s not necessarily a question of what I think. I’m the aggregator of information we’ve gathered while walking with people through their financial issues. I’ve worked with tens of thousands of folks over nearly 30 years, everyone from billionaires and millionaires to broke people, and those in between. In the process, we’ve collected a lot of data through formal research projects.

All that data shows debt is the biggest roadblock between people and wealth. I’m also a Christian. Having read the Bible, and what it says about money, I can tell you there’s not one place in there where it says debt is a good idea. All that information leads me to one conclusion — debt is not a positive thing.

So, get out of debt. If you hate it, and I’m wrong, you can go back into debt. But having no debt makes it much easier for you to become wealthy and be more generous.

Elizabeth is a high school student, who is studying Dave's "Foundations in Personal Finance" curriculum. She calls in to ask what happens to someone's debt when they die, and there are no heirs to take responsibility for what they owed.

QUESTION: Elizabeth asks Dave a question for her high school class at Columbia City High School in Fort Wayne, Indiana. They want to know what happens to your debt if you die with no heirs or relatives to take responsibility for what you owed. Dave is pleased to hear Elizabeth’s class is using his “Foundations in Personal Finance” curriculum.

ANSWER: In many cases it simply does not get paid. Relatives or heirs of the deceased are not responsible for a family member’s debt.

Let’s say someone’s parents died, and at the time of their death they had $100,000 in debt. Heirs are not automatically responsible to take on the debt. The only way that debt will be paid is if they owned enough stuff — if they had enough in the way of assets — to pay the debt. If they owned a $200,000 home, and that house was paid for, it would have to be sold in order to pay the debts. Their estate would be the only thing standing good for the debt. If they owned nothing, and had no co-signers on any of the debt, the creditor would not get paid. The bank lost that money.